Confidentiality Agreement Law: Everything You Need to Know
Confidentiality agreement law deals with contracts signed between two or more parties regarding the handling and protection of confidential information.3 min read
Updated November 11, 2020:
Employment Confidentiality Agreement Laws
Employment confidentiality agreement laws enable an employer and an employee to enter into contracts on the use of confidential, sensitive, or private information that the employee will have access to while working for a company. Generally, employers make confidentiality agreements a requirement of employment. For example, the employer may prohibit the employee from divulging the firm's trade secrets or refrain from talking about the company stock with outsiders.
Enforcement of confidentiality agreements is similar to that of other contracts. Once both parties sign the agreement, its provisions legally bind them. In the event of a breach of a confidentiality agreement, the defaulting party may face financial losses and other legal sanctions. Furthermore, confidentiality agreements usually include enforcement clauses. For example, the agreement may contain a no-litigation clause, meaning that the parties will not sue each other in the event of a violation of the contract's terms.
Limitations of Confidentiality Agreements
However, confidentiality agreements have limitations. An employer cannot force an employee to keep silent about the company's illegal activities. An employee may even face legal charges if he/she tried to hide company violations from regulatory authorities. Essentially, asking an employee not to report violations in a confidentiality agreement renders the contract invalid.
Federal and state whistleblower laws prevent employers from firing employees that report valid company violations to legal authorities. However, the rules also make it unlawful for employees to file false or irrelevant claims against their employers.
Confidentiality agreements protect a company from unauthorized disclosure of business secrets. An experienced lawyer can help you draft, review, and negotiate a confidentiality agreement. Your lawyer can also offer sound legal advice on the contract and represent you if disputes arise over the document in the future.
A confidentiality agreement also called a non-disclosure agreement, or NDA, is a contract formed by two or more persons or entities to prevent the misuse or unauthorized disclosure of information.
Nondisclosure agreements are also known as confidentiality agreements, secrecy agreements, or CDAs. Employers often require their employees to sign confidentiality agreements as part of the employment contract. In some cases, the employer may need the employee to sign a confidentiality agreement when their work will give them access to sensitive company information.
A confidentiality agreement is valid throughout the employee's time at a company and for a predetermined period after the employee's exit from the firm. Generally, a confidentiality agreement has a term of about one to three years and prohibits the former employee from certain activities. These agreements usually have two prohibitions, namely:
- Do Not Disclose, and
- Do Not Use
In addition to banning unlawful disclosure of proprietary information, confidential agreements should also forbid the unauthorized use of confidential information. Non-disclosure agreements signed with employees and independent contractors should ensure that the workers could only use the confidential information for the job they were hired to perform.
Furthermore, CDAs drafted for protecting the details of a transaction must forbid parties at the discussion from unauthorized disclosure of each other's information and restrict the use of the information to the specific topics at the discussion.
Reasonable Restrictions on the Definition of Confidential Information
Before a confidential agreement can be enforceable, it needs to have reasonable restrictions including a reasonably restricted scope. There are several common sense exclusions in most confidential disclosure agreements, including the following:
- The recipient had no prior knowledge of any part of the confidential information before the disclosing party gave them access to it.
- Information that is in the public domain or may be accessed by the public, even if the public is unaware of its existence.
- Information that the recipient got from another party that is legally authorized to share it.
- Information that the recipient developed independently of the other party's protected information.
The Relationship between Trade Secrets and Confidential Information
A trade secret is a type of intellectual property, which provides independent economic value to the owner due to its unavailability to the public. Conversely, the protection of most confidential agreements is not dependent on economic value. The information it protects only needs to be kept secret for it to be considered confidential information.
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